In rejecting Walt Disney Co.'s bid to stabilize the board, an influential corporate research firm has recommended that shareholders add billionaire Nelson Peltz to Disney's board, raising the stakes in a proxy showdown next month.
On Thursday, Institutional Shareholder Services Inc. recommended — which advises large institutional funds on corporate governance matters — will require investors to vote to give the founder of Trian Fund Management a coveted seat on Disney's board. ISS made its recommendation, in part, by citing Disney's failed succession planning.
This recommendation adds to the challenges facing Disney CEO Bob Iger, who has struggled to put Disney on a strong financial path after returning as CEO in November 2022 after a brief retirement. The company has faced several setbacks over the past four years, including COVID-19-related shutdowns that crippled the company's theme parks, cruise lines and theatrical business and a tumultuous tenure for former CEO Bob Chapek.
The shift of audiences to streaming and rampant cord-cutting have eroded Disney's profitable linear TV business. Last year's dual strikes by actors and writers also left big gaps in the programming pipeline.
Iger's return may have been enough to fill the gaps, and management has since taken several actions to chart a better course. “With any luck, the tailwinds of renewed cinematic success should convince shareholders that Disney is once again turning toward safer ports,” ISS said in its report. “What remains missing is tangible progress toward succession to give investors enough confidence that the company will not falter after Iger’s departure and, by doing so, avoid future revolts.”
The company was alluding to the internal coup that ousted Iger's handpicked successor, Chapek, after about two and a half years as CEO. Top Disney executives worked behind the scenes to bring back Iger to replace Chapek.
Board elections will be decided at Disney's annual shareholder meeting on April 3.
However, ISS declined to endorse Trian's second nominee to the Disney board – Jay Rasulo, former Disney CFO. New York-based Trian Fund Management owns $3.5 billion in Disney stock, including shares of former Marvel Entertainment Chairman Ike Perlmutter, an Iger opponent.
ISS recommended shareholders select Peltz over Maria Elena Lagomasino, who has been a member of Disney's board since 2015. Lagomasino, a longtime banker, is CEO and managing partner of WE Family Offices, a firm that serves high-net-worth families. She also serves as lead independent director of The Coca-Cola Co.
In contrast, another corporate governance consulting firm, Glass, Lewis & Co., endorsed Disney's 12 nominees earlier this week.
“[W]“We strongly believe that the ISS reached the wrong conclusion in its latest report when it came to adding Nelson Peltz to the board,” said Mark Parker, Disney Chairman. “In contrast to Glass Lewis, ISS fails to acknowledge the breadth of perspective and experience that Ms. Lagomasino brings to the Board. The strong performance and recent results overseen by the Disney Board demonstrate our focus on long-term shareholder value creation, succession planning, and our commitment to good governance practices.”
Iger has received public support from JPMorgan Chase CEO Jamie Dimon, Star Wars creator George Lucas, and the heirs of company founders Walt and Roy Disney, including Abigail Disney, Walt's granddaughter and a critic of the company's past executive compensation practices. .
On Thursday, another prominent ally — Laurene Powell Jobs, the widow of Apple co-founder Steve Jobs — boosted Disney's campaign for its candidates.
“My family and I have been significant investors in The Walt Disney Company for nearly two decades, and in that time, we have witnessed the company's transformation thanks to the steady and visionary leadership of Bob Iger and the experienced Disney Board of Directors,” Paul Jobs, founder and chairman of the Emerson Group, said in the statement.
“What has always set Disney apart is the way it combines unbridled creativity and technological innovation to tell timeless stories – stories that inspire and enrich the world around us,” she said. “No one understands Disney's important legacy or the responsibility to protect it more than Bob Iger.”
Iger's nomination to the Board of Directors is uncontested.
Disney shares have risen more than 30% over the past six months, but ISS noted that the Burbank giant still lags the S&P 500 over a long period — even last October when activist Peltz unveiled his second proxy fight for a seat on Disney's board.
“Iger’s turnaround plan, although somewhat lacking in specific guidance, may have reassured investors that these challenges are being addressed,” ISS said. “However, the key decision points that led to the challenges the company has faced over the past five years, not to mention multiple activist campaigns, can be traced back to the board.”
ISS said Disney's board failed on two key issues: finding a capable successor to Iger and “preventing Chapek from veering off course after his appointment.”
The question is whether the board will make the same mistakes again, the company said.
“The importance of implementing a successful succession plan, particularly for a company of this complexity, and the failure of the previous board to properly oversee this process, suggests that some level of change at the board level is warranted,” ISS concluded.
Disney's board of directors is looking for four candidates to replace Iger when he retires in 2026: ESPN president Jimmy Pitaro; Co-President of Entertainment Dana Walden, who oversees television; Alan Bergman, co-president of Disney Entertainment, who runs the company's film studios; and Disney Experiences Chairman Josh D'Amaro, who leads a group that includes theme parks, cruise lines and Disney Imagineers.
